CORRECT: Tenon forecasts first cash return in a decade

Feb 20
(BusinessDesk) – Wood mouldings manufacturer Tenon expects
to resume cash returns to shareholders in the second half of
the current financial year after achieving a long-sought end
to years of losses.

Tenon broke even on a net basis in the
six months to Dec. 31 as the North American housing market
starts to recover, the Taupo-based company said in a
statement.

Whether cash will be returned by dividend or
share buyback is undetermined as yet, but it will be the
first cash return to shareholders in a decade, when Tenon
returned $670 million to shareholders relating to sales of
the former Fletcher Forests timber estate. The company has
not paid a dividend since it was listed as Fletcher
Forests.

A decision on the form of cash return “will
depend on a number of factors, including our core goal of
seeing our share price lift,” said chief executive Luke
Moriarty.

The company also announced a “significant
upgrade” in its forecast for earnings before interest,
tax, depreciation and amortisation at the mid-point of an
average United States housing market recovery, from US$35
million to US$45 million.

The forecast assumes 1.7 million
US housing starts a year and a US-New Zealand dollar
exchange rate of 70 US cents, compared with a rate this
morning of 82.95 US cents and an internal hedging rate of 80
US cents at Tenon.

“Key indicators point to ongoing job
recovery in the US economy, combined with rising home prices
and pent-up housing demand,” Moriarty said. “This has
already seen a recovery in new home construction levels, but
only to levels equivalent to the bottom of previous
cycles.

“In others, over the past 50-plus years, US
housing starts have been above the current level for almost
90 percent of the time.”

However, there were now
“headwinds” in the US market, including the impact of
the US Federal Reserve’s tapering programme to reduce
monetary stimulus and severe winter weather, which has
affected activity.

For the six months under review, the
company turned over US$197 million, up from US$174 million
in the same period a year earlier, to produce ebitda at the
six month mark of US$3 million.

In the prior period, Tenon
recorded an ebitda loss of US$1 million.

The company
confirmed its “objective” this year to double the US$5
million ebitda achieved in the last full financial
year.

The current period’s break-even net result
compares with a US$2 million loss in the first six months of
the last financial year.

Elaborating on previously
announced intentions to improve Tenon’s exposure to US
investors, where 90 percent of the company’s revenue is
derived, Moriarty said “while one obvious path we will be
considering is a dual stock exchange listing … we will
also be undertaking a much wider company review to see how
the company can be best positioned to create value for
shareholders as the current cyclical recovery
progresses.”

He reiterated directors’ view that Tenon
shares remain undervalued, based on an Edison International
Research report prepared for the company last year that put
a value range on the shares of between $2.05 and $2.55,
assuming it can access tax losses built up over the last
decade.

Tenon shares have traded as low as 50 cents apiece
during the long recession in the US housing market, which
began with the 2006 sub-prime mortgage market collapse and
helped cause the 2008 global financial crisis.

Their low
point in the last year was 86 cents, in May, but the shares
have climbed 47 percent in the last 12 months to close
yesterday at $1.47. The thinly traded shares, of which
nearly 60 percent are held by investment vehicle Rubicon,
did not move in early NZX trading
today.

The Wellington-based BusinessDesk team led by former Bloomberg Asian top editor Jonathan Underhill and Qantas Award-winning journalist and commentator Pattrick Smellie provides a daily news feed for a serious business audience.

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